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Comment by loeg | Hacker News Reader

> The Nordic nation’s $1 trillion sovereign wealth fund said Thursday that it’s considering unloading its shares of Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants to diversify its holdings and guard against drops in crude prices.

That doesn't sound like activist divestment. And in fact, environmental activism isn't why Norway is considering this action:

> Norwegian officials say the plan isn’t based on any particular view about future oil prices

> ...

> the move has more to do with hedging risk than saving the planet. Norway derives about 20 percent of its economic output from oil and gas. Finance officials have long debated whether reinvesting those profits back into petroleum producers leaves Norwegians overly exposed to the volatility of oil prices.

So the headline and intro are fairly misleading, IMO.

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“This is like praising Exxon Mobil Corp. for taking other oil-company stocks out of its 401(k) plan. Sure it has sold some oil stocks. But it remains an oil company! “

“Norway is a petrostate with a sovereign wealth fund, and it has sensibly decided that that sovereign wealth fund will do a better job of diversifying the country's wealth away from oil if it does not also buy oil stocks. Norway has plenty of oil! “

https://www.bloomberg.com/view/articles/2017-11-17/absent-re...

Face it dude, fossil fuels are a thing of the past.

Oil isn't just about fuel. What's that computer or phone you typed this on made out of? Generally not wood, clay or pure steel.

Aren't all of those things only a tiny fraction of our oil usage though? The entire global plastic industry accounts for < 5% of the oil we dig up IIRC. The vast majority is turned in to fuel.

Likely true. However that will need to last us a long time. 5% of oil is still a very large industry.

We could still make Polyethylene from renewable ethanol. However oil is more flexible, and if we do run out it's shit.

We make renewable ethanol from agricultural products entirely dependent on fossil fuels.

Yes, plastic is so passé.

That may eventually be true, but that just underlines that there are economic reasons to diversify whether or not you care about the environment.

The bottom line is these companies are being valued by the market based on the assumption that they'll be able to sell the barrels of oil in their proven reserves. If those reserves are "unburnable", the current valuations are not accurate, because the market for their product will be much smaller. Either they are valued correctly, or we're going to take action that prevents the worst effects of climate change - but it can't be both.

And also the present, and at least part of the future.

Well, yes and no. This is plausibly a move which could be performed even in a world where oil is expected to be the only viable energy source.

But on the other hand, if you wanted to divest from oil with the expectation that oil will become a non-essential resource, you wouldn't go around proclaiming it loudly. I had the same thought when I first heard the announcement; this is going to be interpreted as more than a diversification move, and I'm not certain that it _is_ purely a diversification move.

Saudi Arabia is doing the same thing by listing Saudi Aramco on the stock exchange. If oil will eventually become a (relatively) niche resource, the market value derived from non-extracted resources will tank, and divesting needs to happen now, before everyone realizes what's going on. To do this without triggering the very thing you are hedging against, you need to have plausible deniability, which Norway does.

Saudi Arabia is quite different from Norway though as something like 70% of their economy is oil and 30% of Norway’s is. Saudi Arabia has made themselves insanely dependent on foreigners while Norway isn’t and can continue to function as a normal country after oil. Nothing is normal with Saudi Arabia.

The question that you're circling, but can't seem to put your finger on is "if they weren't concerned with oil's future, why would they diversify?"

Historically, oil has gone gangbusters. I doubt any of the sovereign wealth funds lost money buying oil stocks. Yet, within a decade, we've seen a few of them announce that they're going to diversify. Ostensibly, this is a move to stabilize their long-term value against market fluctuations, but given the criticality of energy and how well historically these companies have done, it seems more likely that they're worried about a major market shift on the 30-50 year horizon and are looking to reposition themselves ahead of when the market itself moves.

So to me, it looks like major oil producers are preparing to leave oil, when viewed through a generational lens -- the wealth funds are clearing out, educational training programs are shifting, etc.

In 10-15 years, the flow of new workers will hit whatever low-level long-term carrying will be; in 30-40 years, oil will have settled into some kind of "post primary energy" role. (It's not like petrol products are suddenly not useful; just the bulk of traffic will shift, and so there won't be enough business to support several nations.)

Of course, 2050-2060 was when people were guessing that was going to happen for quite a while. But this seems like a sign we're on track for that, broadly speaking.

> Yet, within a decade, we've seen a few of them announce that they're going to diversify.

The important development in this decade is that we have turned some corners in technology, primarily electrical cars with sensible mass-market economics, so a significantly less oil-dense energy economy is now a mainstream projection using fairly orthodox assumptions - electricity is primarily produced from coal and natural gas, rarely oil. Previously, predicting the end of oil was more in doomsday/crackpot conspiracy territory.

Also, in this same decade, fracking came of age. Where previously the endgame for oil was holding the world hostage at ever rising prices, we now know that there is a substantial supply at $80-100, effectively capping the price there, making the endgame a lot shorter and much less profitable.

Won't the endgame be longer rather than shorter?

I meant for legacy oil companies. They won't be able to draw out a long decline.

Oil will be around basically forever, but play a diminishing part.

>But on the other hand, if you wanted to divest from oil with the expectation that oil will become a non-essential resource, you wouldn't go around proclaiming it loudly.

Particularly if you're an oil exporter.

Norway has been remarkably successful, clever and a little lucky with this sovereign wealth fund.

Hedging makes sense. The funds primary source of growth is oil and oil prices, the outside money. Why carry the same risk in the portfolio itself?

It's the national equivalent of "Don't invest in your employer, because if it goes bust you lose your investments AND your job."

This advice is usually "Don't (only) invest in the industry you're employed in".

See e.g. the dot-com bubble and how people who worked in IT and had invested their money mainly in IT were screwed, whereas it wasn't so bad if you just got fired and say invested in an S&P 500 index fund.

But yes, investing only in your employer is a particularly bad version of that.

...investing only in your employer is a particularly bad...

Haha when I worked for Lucent long ago they actually had a program set up exactly for that, so my more foolish colleagues received vastly-overpriced stock in place of some percentage of their salary. Thinking back, the managers must have had some kind of incentive because they hyped it in unseemly fashion.

ESPP programs are fairly common, and usually a great decision because they yield a minimum 15% return on the final value of the investment at the end of the program period whether the stock goes up or down. If you sell immediately, you realize a minimum of 90% ARR over the program period. [1]

No need to keep it there if you just want to take your gains and walk.

[1] https://thefinancebuff.com/employee-stock-purchase-plan-espp...

15% is not a minimum. ESPP discount will vary by employer.

That said: yes, they're usually a very good value for employees as long as you sell immediately and diversify the proceeds.

In some cases one would be better served to run rather than walk. I remember advising colleagues as to the riskiness of this program in late 1999. Three years later LU had lost 98% of its value.

ESPP is guaranteed to make money for employees. Everyone should sell ESPP shares immediately, of course, and most don’t, so functionally you’re right, they’re dangerous, but if you can be mildly disciplined, I don’t think there’s a better investment in the world than taking your employer up on discount ESPP shares then selling the moment they’re in your account.

...functionally you’re right, they’re dangerous, but if you can be mildly disciplined...

It's interesting that these schemes aren't viewed in the same light as e.g. credit card incentives. Getting 0% interest for the first 6 months is a deal good enough to put the credit card bank out of business, but somehow enough credit card borrowers are getting screwed to pay for the incentive overall. TANSTAAFL. Why is that harder to recognize in some circumstances? Is it a class thing? Anyone can get a credit card, while only high-quality people like ourselves can get a job at Acme Inc?

Anyway credit card companies might be evil, but they receive enough scrutiny to be extremely lawful in their evil. (If you actually pay off the debt they won't forget about your payment.) Can we really make the same statement about employers, in general? One might have a standing order to sell these shares at regular intervals, but one has seen enough HR shenanigans by this point to realize that they DGAF about employee interests... "Oh gosh we're sorry that got changed at the beginning of the year and we didn't tell you about it for 9 months while you lost all the money you've ever made in this program! Our recent stock slump has been difficult for everyone! There's nothing we can do about it now! I guess you should have been mildly disciplined..."

Agreed it’s a similar psychological principal, but the threat model you’re describing from HR is silly.

ESPP is only for publicly traded companies, and when the purchase goes through, you get shares at a discount on the more advantageous of the starting and ending stock prices.

HR has no power to prevent you from selling that stock, it’s held in a stock account over which you have full control and HR has none.

You are already paud by your employer, you are not going to get more money or security from him.

many companies encourage employees to buy stock with special rates.

If you're really lucky, as I'm sure you well know, you can ever put your pension into the company, and then when Enron goes bust you've got no job, no investments, no pension!

Which any wise person would sell immediately to diversify.

That is not necessarily true. As an employee, you may be in a good position to judge whether a firm is likely to succeed, with perspectives not available to the market. This is why markets often react when CEOs buy/sell their own stock.

The average employee would be in a terrible position.

Ref: Enron.

Isn't it more likely that you don't know your employer as well as market analysts, but that you do have much more severe cognitive biases?

A CEO is an "insider" in market-speak. Jo(e) Engineer is just a punter like anyone else.

That's not strictly true. Depending on the company, it's very possible for mere engineers to have access to material non-public information. There's a reason many companies impose broad blackout dates on trading.

Mere engineers would be prosecuted long before CEOs for the totally-at-Justice-Dept-discretion crime of "insider trading".

That's self-evidently false. Engineers have insight into the internal culture of a firm and how it may differ from public perceptions, not to mention their own opinions on the quality of the back end technology and awareness of future plans or possibilities.

The advantage of the employee isn't insider knowledge - it would be illegal to deal based on it - but understanding what the company does and which market it works in in the first place. This purely technical knowledge might give investment decisions some better factual support. But

Sure, but until those options vest you’re still doubly exposed. I’m in this position right now. A fixed amount from my pay goes into buying options which vest in 3 years time. Fortunately I could afford to lose that money if it came down to it, but it’s a real issue and in a worst case scenario that’s money I might need. It’s certainly a consideration.

Investing in options that vest in three years. Hopefully you are part of a big stable corporation.

There's a reason you get a discount. Are employees who buy options generally unaware of the risks?

You'd be amazed how many people willingly keep large portions of their net worth invested in their employer.

Nothing in the title or intro indicates that it was caused by environmental activism, just that it's a major positive step in their view.

Environmental activism seems to be an almost entirely invented slant by the author and his or her selection of quotes. The piece reads like propaganda to me.

I've found that every message surrounding environmentalism from all angles - either for or against - is almost always propaganda. People without some sort of bone in the game have long since dropped out of the ironically toxic discussion. There's just too much money involved in it and no real desire for real discussion. Only zealotry remains.

The winning move is not to play.

Shot heard round the world

Implies exactly that. If it had nothing to do with activism then 1) activism effort to influence investments failed and 2) this lends no momentum to the movement as it was a coincidence and could be changed tomorrow regardless of environmental impact.

The only way this is positive news for EA is if they spin and misrepresent it as is done here.

Strongly disagree. Markets are not rational and changes in portfolio allocation by sovereign wealth funds are likely to have a ripple effect no matter what the stated reason. If it pans out, that means fossil fuel stocks become de facto optional rather than mandatory.

No, assuming the fundamentals haven't changed oil stocks become a good investment for other entities until the price is back to where it was (assuming it's negatively affected at all).

Oil may or may not have a bright near to mid term financial future, but Norway's move is either virtue signaling at the national level or diversification of a portfolio that's too heavily invested in that sector. In itself it won't change the oil market one iota.

$35B divestment out of trillions in oil businesses market caps is a rounding errror.

Yup, they're already invested in oil, buying XOOM etc shares just un-diversifies (is that a word??) their investments.

The opposite of diversify in this context is usually concentrate.

Although driven by their own policy, the fact that almost half of the new cars in Norway are electric/hybrid vehicles is incredible. I think they know EVs are on a growing trend, and they just get to see it at an accelerated rate than everyone else - but they probably believe the same will happen elsewhere, just 5-10 years later. I think it's unlikely that this wasn't at least a small factor in their decision.

I also believe that as EVs grow to 5%, 10%, 20% of the global sales for cars, Norway will increase its "hedging" over the next few years, which will show some direct correlation between EVs and Norway's decision to hedge its oil stock risk.

One should factor in that Norway's petroleum exports are ~50% natural gas (of which <1% goes to fuels for cars) and ~50% oil (of which ~60% becomes fuel for cars, trucks, tractors, excavators, airplanes, etc.).

So the total "negative exposure" towards EVs if all cars everywhere become electric is <30%.

Furthermore, the retail sales of gasoline and diesel fuel has not yet shown any decline in Norway [1], despite EV-subsidising policies being in effect for a decade. So decreased fuel sales volume has a many-year (perhaps even decade) long lag behind increased EV sales. (The average Norwegian car is 17 years when it is scrapped.)

[1] https://www.ssb.no/en/energi-og-industri/statistikker/petrol... - petroleum product sales statistics, English description, you can export to csv file.

Oil in the arctic costs $40 or more to extract. Oil in Saudi-Arabia costs, what, $15? So at the very least there is a 50% exposure as the oil price will fall for all oil. It is not like Norway is the sole exporter. If oil price drops and there is a race to the bottom, only the cheap sources will sell. Norwegian oil is among the most expensive to produce (that is currently operated with the hope of profit).

If oil price drops too far you coild imagine gasoline and diesel generators taking over for gas :p or at least NLG taking a hit... the energy market is coupled.

> the retail sales of gasoline and diesel fuel has not yet shown any decline in Norway [1]

Odd. The stats you point to say otherwise. Says motor gasoline is down (1.9%) and diesel is up (4.7%) – so it's kind of a wash.

More interestingly (in the context of this news of divestment) the total figures are down year on year on year

(in 1000 litres units)

    2012    9 635 521
    2013    9 279 405
    2014    8 995 567
    2015    8 827 093
    2016    8 790 684

In light of those figures divestment looks sensible.

No, you have to look at just the sum of dutiable diesel and gasoline, which shows no decrease (even an increase). Most of the change you're summarizing above is reduced usage of light fuel oil (for heating), marine fuel and heavy distillate, particularly the latter two. Those changes are not caused by EVs.

Why would it happen elsewhere, unless other countries adopt the same tax policies? The main stimuli behind it was ridiculous tax on new vehicles that was absent on electric cars - if a new Tesla S costs the same as a basic VW Passat, it's a no brainer that Tesla sells better. But even in very wealthy countries(UK) electric cars are still much more expensive than normal cars and when I was buying 2 new cars last year it just didn't make any sense to purchase electric - the saving on a petrol car vs. Electric would pay for more years of fuel than I plan to keep the car for. Now, if those other cars were taxed at 100% or if the fuel was even more expensive than it is - then sure, it would make perfect sense. But as it stands now, no one is breaking into the cheap car market.

It is highly relevant though because it shows people are willing to buy electric at comparable price to ICE cars, even in a country with a spread out population and harsh climate.

Until the Norway experiment one could not know how much people care about using a fundamentally different car technology.

It shows that with likelyhood as EV prices drop sales will take off elsewhere.

> It is highly relevant though because it shows people are willing to buy electric at comparable price to ICE cars, even in a country with a spread out population and harsh climate.

But because of the harsh climate, Fenno-Scandinavians are already used to plug their car when they park it at home or at work (to warm up the engine and the interior in wintertime). Less change, an habit of seeing plugs a bit everywhere and the knowledge that it is not so much of a practical, legal, financial problem to have such a network installed, so less reluctance to switch, compared to inhabitants of southern Europe who imagine, rightly or wrongly, major obstacles to overcome for everyday use.

But many of the electric car owners live in the cities. Here they can drive in the bus lanes and don't pay the road tolls. This makes an electric car an excellent commuter choice.

Unless I'm mistaken, new electric cars in Norway have a subsidy of almost 50%, and are exempt from highway tolls.

So your stats have to be viewed through a heavy prism: it's not a customer trend as much as a government push.

This has been true due to the VAT and emissions tax exemption. The VAT exemption on PEVs will be dropped in 2020.

Also, a proposal has recently been made for a tax on heavy electrics (Tesla's). It will add $11687 to the purchase price of a Tesla X, before the now exempted VAT is added.

Road tolls for PEVs will be increased to half of ICE vehicles'.

It's incredible if electric cars were priced comparably relative to ICE cars, which they are not in Norway

Electrical cars are priced comparably to ICE cars (after subsidies). The main reason electrical cars are selling so good is not the price of the car, but rather all the other subsidies. Free pass through toll roads (which can be pretty expensive), free parking, free ferries and almost free fuel. Most car trips are short enough that range isn’t a problem.

ICE cars in Norway enjoy a 25% sales tax and quite a lot of taxes for the co2 emisions, engine size etc. Most low end cars end up just short of 100% in taxes, high end cars up to 200%, and luxury cars are a lot more.

Electric cars would not sell anywhere near as good if they weren't exempt from taxes and cost twice as much as they do now.

> and quite a lot of taxes for the co2 emisions, engine size etc

In other words, when you take away the implicit subsidies for the unpriced carbon, electric cars become cost-competitive?

(In Norway, the electric grid is primarily renewable/hydro based[1]... yes, I realize this argument is different for countries with different electrical makeups)

[1]: https://en.wikipedia.org/wiki/Electricity_sector_in_Norway

In macro economics, perhaps. To the individuals doing the purchasing, it's their short term expenses that matter most.

Electrical cars are cheap in Norway compared to other cars, especially compared to the same situation in other countries.

It's not like they're cheap, but the fees are insanely high for ICE cars in Norway.

Example: A BMW M550i is from what I can see $73,400 in the US and $135,300 in Norway. That's 82 percent more. The difference is way smaller for electric cars.

The fees are "sanely" high for ICE cars in Norway. Whats "insane" is our refusal to price the pollution externalities elsewhere.

Bingo. I looked up the vehicle example and the first search result talks about it hitting 60mph in 4 seconds. That kind of car is hit heavily by Norwegian taxes, as they are in part based on engine displacement.

It's not based on engine displacement, it's based on emissions.

Pretty much. Most of that was introduced back when Think was the height of EV, and very few were interested.

Come Tesla, and suddenly all the rich people in Oslo wanted one so they could bypass the commuters by driving in the bus lanes.

The rest of the nation is still very much an ICE nation. When you have to drive a half hour or more to do certain types of shopping when you live outside the cities, they are pretty much required.

In spring I drove 500 km in Norway between Oslo and Bergen in a leased eGolf from 2016. The whole trip took 9 hours versus 7.5 hours in an ICE car. The extra time is just time at quick charging stations that I had to use 4 times. The trip is over mountains with over 1Km up and that kills the battery much quicker than the promised 200km of range.

On a more flatter terrain around Oslo the car could go around 150km. This is more than enough for any kind of shopping. The newer eGolf almost doubles the range making it absolutely non-issue if one gets car today.

The real reason is why electrical car has not been popular with less wealthy people is that cars in Norway are heavily taxed making one a heavy investment that one sticks to and people here are rather conservative. But attitude is changing.

And that’s horrible because they’re not only financing Tesla with car purchases, but also tax money and by this large national wealth fund. Why burn your own resources to someone else’s benefit? They don’t develop anything for themselves this way

> So the headline and intro are fairly misleading, IMO.

Pretty much Bloomberg's modus operandi when it comes to their select few pet projects.

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